Local councils would be allocated greater power to vary their rates of property tax under proposals to reform the levy favoured by Taoiseach Leo Varadkar.

Mr Varadkar wants to reform the Local Property Tax (LPT) system to give local authorities greater flexibility than they currently have, thus allowing councils in urban areas to prevent steep increases due to rising property prices.

At present, councils are permitted to alter the rate by 15 per cent, up or down.

During the recent Fine Gael leadership campaign, Mr Varadkar said he wanted to increase the level of variation councils can make. He also said he wanted councils to keep the property tax that had been collected in their areas, a move which would benefit authorities in Dublin and other urban centres with higher property prices.

Mr Varadkar’s spokesman said on Tuesday it is still the Taoiseach’s “intention” to reform the tax in that way.

Currently, all councils must set aside a fifth of their property tax take to be distributed to local authorities with a smaller tax base, such as Longford or Leitrim.

At the moment, the rate of tax paid is based on home valuations which have not been updated since 2013. Another valuation update is due in November 2019, meaning many homeowners could see increases in their liabilities because of rising property prices.

‘Sudden dramatic hike’

Earlier this week, the Taoiseach said he does not “envisage” or want to see “a sudden dramatic hike” in property tax.

“We will be working hard to avoid that,” he said. “My own local authority in Fingal has voted to alter it downwards, but only by 10 per cent instead of 15 per cent, thus freeing up I think about €2 million for housing and homelessness.

“Those are the kind of decisions that councils are free to make and individual councils have to make those decisions for themselves at a local level.”

Government sources have previously suggested Minister for Finance Paschal Donohoe could soon announce a new review of property tax, which would conclude its work by the middle of next year ahead of the planned revaluation date in 2019.

A spokeswoman for Mr Donohoe said one of the main considerations as part of the future approach to the system will be to ensure “relative stability” in the level of tax paid “both over the short and longer terms”.

Valuations were supposed to be updated in 2016, but the Fine Gael-Labour coalition decided the previous year to delay the revaluation date until November 2019, with the new tax levels taking effect from 2020.

In a 2015 report for the Department of Finance, former public servant Dr Don Thornhill outlined a number of options for the future of the tax.

Minimum level

His central recommendation was a new system whereby central government would set a minimum level of property tax. This would allow for the determination of tax rates in each local authority.

Councils could then vary this by 15 per cent in either direction.

Dr Thornhill also suggested recasting the tax as a local authority charge, raising funding each year based on the needs of local councils. In this scenario, annual increases could be tied, for example, to general inflation, rather than house prices, which tend to be more volatile.

Fianna Fáil finance spokesman Michael McGrath wrote to Mr Donohoe last month asking him to outline the Government’s proposals on the issue.

The Minister’s spokeswoman said the Government “will make its position clear, and in good time, so that households will know well advance what its plans are for LPT”.